At first, the coronavirus pandemic slowed the New Jersey real estate market, but a tremendous recovery followed, even as many other industries struggled.
“It’s COVID-19, which is probably one of the main reasons,” said Robert White, a Monmouth County real estate agent, who noted that buyers fleeing New York City have been driving demand in his area.
The increase in home sales means an increase in New Jersey’s bottom line because a tax on real estate transactions generates more revenue.
And real estate is not the only industry to see an increase in sales and a corresponding increase in government revenues during the pandemic.
Taxes on alcohol sales rose in New Jersey during the pandemic, as did revenue from the state lottery.
Government tax data shows that income from inheritance tax transfers also increased significantly during the health crisis. But this can be more than just the grim reflection of the deadly pandemic.
Without a doubt, New Jersey’s monthly tax collection reports reveal the financial damage caused by the health crisis, but they also show that some tax sources have been expected to lag behind last year’s pace, but others have rushed forward.
Some tax sources are doing far better than predicted
The strong performance of many tax sources has helped to brighten the revenue outlook somewhat, which at times was historically poorly forecast over the past year. Recent revenue rallies could also point to an improving long-term forecast, which would provide a good foundation for the next state budget that Governor Phil Murphy will put to lawmakers on Feb. 23.
Murphy, a first-time Democrat, forecast significant revenue losses last year after the pandemic hit New Jersey.
That dire financial outlook prompted Murphy and other Democrats, who hold a majority in lawmakers, to clear an emergency room without voter approval in order to maintain a year-over-year increase in government spending.
By the end of December, however, government tax revenues had increased by more than 5% compared to the same period last year. Treasury officials have blamed the rise on several new tax policy issues and are sticking to the forecast, at least for now, that total revenues will still be below last year’s levels through June.
Income tax receipts way down
In addition, some important tax sources remained below the previous year’s level until the end of December. This includes income tax, which is the largest single source of income for the state budget. This poor performance is not surprising given that the unemployment rate in New Jersey rose dramatically during the pandemic.
Despite the ongoing pandemic, several tax sources exceeded Treasury Department forecasts in the first half of the fiscal year.
A good example is the real estate transfer tax, which has likely been influenced by the booming market that White and other brokers reported.
The Ministry of Finance initially forecast growth in real estate transfer tax of less than 1% year-on-year for the 2021 financial year. However, according to the latest figures, revenue had already increased by more than 11% by the end of December.
This reflects the year-end sales numbers tracked by the NJ Realtors organization, which saw the average price of homes sold more than 10% year over year. The number of pending sales and closed sales also increased year over year, the group said.
Treasury officials note, among other things, that interest rates fell to historic lows amid the pandemic, which is likely to help fuel the surge in New Jersey home purchases.
“We believe this is due to a combination of pent-up demand, historically low interest rates and economic recovery in middle- and higher-income households,” said Treasury Department spokeswoman Jennifer Sciortino.
“There may also be a shift in households from urban and / or rental to suburban home purchases due to the pandemic, but we don’t currently have statistical evidence of this,” she said.
Booming alcohol sales
Beer, wine, and liquor sales also boomed during the pandemic. According to the tax collection reports, alcoholic beverages excise tax revenue increased by about 30% year over year by the end of December.
The Treasury Department believes the sharp increase is due to a temporary change in drinking habits, with more alcohol taking place in private homes rather than in bars and restaurants, which until recently were severely restricted.
“Alcohol taxes are volume taxes, so more volume generates more tax revenue,” said Sciortino.
“Consumers can buy more volume per dollar for home use. Consuming alcohol in a bar or restaurant that has drinks by the glass or shot rather than the bottle is more expensive and likely to limit the total volume per dollar spent, “she said.
Paul Santelle, executive director of the New Jersey Liquor Store Association, said the state likely received an initial boost from non-state consumers as well – including from Pennsylvania, which has state liquor stores that have been closing for months due to the pandemic.
New Jersey residents who typically work in New York City but instead work from home are also likely to help grow sales in the state, said Santelle, owner of Garden State Discount Liquors in Perth Amboy.
And while business has continued to be buoyant in many liquor stores this year, that doesn’t mean they are making profits. One decline in margins has been the shift to more bulk purchases rather than individual purchases, saving consumers but also reducing profits for retailers.
“So much of my business went into the bulk – people buying through the case,” Santelle said.
“People get the idea that we are killing and the reality is that I’m making a lot less profit,” he added.
State Lottery, another winner
Another bright spot in the Treasury Department’s tax collection reports was revenue from the state lottery. They rose almost 9% in December and more than 7% in the first half of the fiscal year.
Thanks to a law passed in 2017, the revenue from the state lottery now goes straight to New Jersey’s severely underfunded pension system for public workers. That means that the increase in revenue has been a welcome aid to one of the state’s greatest fiscal challenges.
While the final numbers for January have not yet been released, Deputy Treasurer Dini Ajmani said at a public meeting of state pension officials recently that this was the best month for the state lottery.
“There is so much pent-up desire for joy out there,” said Ajmani. “A special opportunity in which we derive some benefit from this basic human need to feel good is the lottery.”
Transfer inheritance tax
A possibly far sadder story, however, is told by the latest state inheritance tax collection figures.
Overall, according to the Ministry of Finance, tax revenues for inheritance tax in the first half of the 2021 financial year were almost 30% above the previous year’s figures.
More than 20,000 New Jersey residents have lost their lives to COVID-19 in less than a year.
At the same time, Wall Street is booming despite a slowdown at the start of the pandemic. This suggests that market conditions could add value to the goods of many residents who died in the past year, regardless of the cause of death.
“Most likely, the recent surge in revenue collections is more closely related to property values, and stock markets are having a positive impact,” said Sciortino.
“There is typically a delay of around nine months between death and an estate / inheritance settlement, so higher pandemic death rates can become a factor,” she added.